The UTTC is very simple and straightforward. When a taxpayer pays tuition for a
Michigan child to attend an alternative school, that taxpayer may claim a portion of the
tuition paid as a credit against the tax liabilities mentioned above. The credit is
non-refundable; that is, only taxpayers who owe taxes can claim the credit. Taxpayers who
do not owe taxes cannot receive a "refund" from the state. The amount of the
credit is limited under the plan in two ways.

First, the maximum allowable credit per child is phased in over a period of nine years,
starting at 10 percent of the average amount received by state and local government per
child in the Michigan public school system and eventually equaling 50 percent of the
average per-child revenue. Thus, the tax credit will never be more than half of the amount
received per child in the public school system.

To demonstrate with a simplified example, Table 1 shows the amount of the credit over a
period of 9 years based on a constant annual per-child public school spending of $6,000
(this amount would actually increase each year). The purpose of the phase-in period, as
described later in this report, is to minimize impact on the state budget.

Secondly, the credit is limited to 80 percent of the tuition paid, unless the student
is from a family whose income falls below the federal poverty level, in which case the
credit is 100 percent of the tuition paid, up to the maximum allowable credit. Requiring a
non-creditable payment of 20 percent of the tuition for non-poverty-level families
provides downward pressure on the cost of tuition, helping keep education efficient and
affordable. The credit for students whose family income is below the federal poverty level
is limited only to the maximum credit amount, making it easier for taxpayers to assist
such students.

The UTTC is limited to 80 percent of the tuition paid, unless the student is from a family whose income falls below the federal poverty level, in which case the credit may be up to 100 percent of the tuition paid.